Start of a new era or yet another display to keep
the international lenders happy

By NADEEM NAQVIThe Author is Head of Research
at Khadim Ali Shah Bukhari & Co.Feb 19 - 25, 2001

Privatization is back in the headlines. Within a spate of a
few weeks, we have had news of privatization plans for PTCL, PSO, PIA and an
added sweetener via the sell off of the government stake in MCB. Is this a start
of a bold new era of decisive action by the administration on this front, or are
we witnessing yet another round of noises to make the IMF/ World Bank happy
prior to the next review of the economic restructuring process by international
lending agencies. The truth is anybody's guess. One thing seems clear though:
the whole process of privatization still appears bogged down in legal,
procedural and administrative details. The broad policy parameters are not even
clearly spelt out. Sometimes we hear that various public sector entities will
first be restructured and their earnings improved so that privatization can
fetch a higher price. At other times six-month deadlines are announced for the
final sell-off. In between, unanswered questions remain regarding regulatory
frameworks in various sectors, pricing mechanism in the post privatization era,
legal implications for any possible personnel retrenchment, position of intra
public sector receivables and a host of issues concerning financial and
organizational restructuring of the public sector corporations.

Recently, while waiting to meet the chairman of a public
sector entity in Islamabad, we overheard a fascinating conversation between two
gentlemen who were also in the waiting room. One person was lamenting that his
son had still not got a job in the company despite phone calls having been
arranged from two ministers. He appeared all the more upset because, according
to him, several people from a neighbouring "bradari" secured jobs in
the company over the last six months and he seemed to believe that it was the
'right' of his bradari to also get a job in the company. There was no mention of
qualifications, skills or the job responsibilities. The entire fifteen minutes
or so that we were there the discussion remained focused on the 'right' to get a
job.

What we found amazing was the degree to which our population
has been dissociated with a simple reality of life. To gain anything, effort
must be expended, struggle and pain must be incurred — there is no free lunch
in life. On the other hand, we do not blame the above mentioned persons. For
them, as for millions of us in the country, the reality has been so distorted
that all of us collectively now believe that things should be handed over to us
on a silver platter as of birthright. The mass nationalization, intervention of
the government in every aspect of socio-economic activity, has drugged the
population that something can be had for nothing. It is the prevalence of this
"free-rider" culture that has done the greatest damage to us as a
nation and as a society. In our view, the longer public ownership of economic
entities continues, the more devastating will be the effect on the country.

We believe that the key issue is one of tackling the
fundamentals. And the most fundamental issue, in our opinion, is to build a
consensus about the question of privatization. In this regard, would it not be
appropriate for the government to issue, for example, a "white paper",
that describes the necessity and compulsions for privatization; that specifies
the exact losses of each public sector entity, not just in P & L terms but
also the opportunity cost in terms of inefficiency as well as overt and covert
cost overruns as compared to regional / international concerns in similar
industries; that deals with the important aspect of retraining and redeployment
of potentially retrenched staff, including the issue of civil service rules
versus private sector compensation packages; that covers regulatory and legal
framework which would govern the privatized industries ensuring a balance
between the demands of various constituencies; and other related issues.

If there is greater transparency about the exact amount of
losses incurred by the public sector entities the average citizen and taxpayer
who currently bears the burden of subsidizing these entities will become aware
of the need to privatize and the speed with which this must be done. Unless such
a holistic approach is adopted, the entrenched vested interests that have their
hands in the honey pot of public assets will continue creating hurdles in the
path of transition from an administered to a market driven economy.

We are not against economic planning, even at times sector
directed economic policies. What we argue against is concentration of power in
the hands of bureaucrats in allocating the precious few resources of the
country. Beyond very broad policy level parameters, these powers are invariably
abused and misused. Then a new constituency for accountability rises and that
scares even honest personnel from taking any decision. The result is policy
paralysis or worse, implementation paralysis as no one wants to take
responsibility for any decision.

The way forward is to phase the process of privatization in a
coherent and realistic order that allows for proper legal processes, regulatory

framework, any pre-privatization organizational and financial
restructuring to be put in place before the unit is put up for sale. There needs
to be a publicly disclosed road map with time bound benchmarks for measuring
progress towards eventual sale. We cannot overemphasize the need for proper
legal framework. In a civilized society differences (which invariably arise in
any human endeavour) are settled by referring to the law. And the law must be
clearly defined covering as many aspects of this process as possible. Only when
this is done will the government, any government will have the ability to take
bold decisions and move ahead with confidence. More important, only then will
serious investors sit up and take notice and come forward to respond to
privatization proposals.

We fully support the initiatives being taken by the current
administration to restructure the economy and put it on sounder foundations from
which to begin sustainable long-term growth. At the same time, we remain
concerned the attention and priority that should be given to privatization does
appear to be forthcoming. In our opinion, this is a critical plank of any policy
aimed at reviving the economy and moving it towards its true potential. If this
is not done, all other measures will end up becoming meaningless, as the
rent-seekers will continue holding the productive segments of the population
hostage to their tune. Proper allocation of resources to economically viable
sectors will simply not accrue as changing and politically motivated ordinances
destroy the signally mechanism in the economy as has been the case in the past.
And the end result will be continued elusiveness of better future for the rest
of the population.